Currency Trading with Ichimoku Kinkou-Hyo

The Ichimoku Kinkou-Hyo is a technical study that was developed by a Tokyo newspaper writer, Goichi Hosoda, before World War II as a self-standing forecasting method for all financial markets. The name is a bit of a mouth-full, so many traders only call it Ichimoku, but in loose translation the full name means “One-look at the equilibrium prices.” The name originated with Hosoda’s pen name "Ichimoku Sanjin," which means a glance of a mountain man. This technical study consists of gauging midpoints of historical highs and lows at different lengths of time and several time lengths matched those used in the MACD’s moving averages. Ichimoku provides another method of analyzing trends and brings additional points to retracement/extension analysis, and support and resistance from moving averages.

Ichimoku Kinkou-Hyo

The Ichimoku system consists of five lines: Kijun, Tenkan, Chiku, Senkou Span A and Span B. (See an application of this method as applied on the daily euro/dollar chart in Figure 1)

caption: Figure 1. Example of the complete Ichimoku system and its five lines: Kijun, Tenkan, Chiku, Senkou Span A and Span B as applied to the daily euro/dollar chart.

Kijun (Trend Line)

Kijun means trend in Japanese. Consequently, if the trend line is heading down, then this gives a selling signal and if the kijun line is advancing, then this suggests a buying signal. See only the trend line plotted on the daily euro/dollar chart in Figure 2.

caption: Figure 2. Application of the Ichimoku’s trend line (Kijun) on the daily euro/dollar chart.

If using only this trend line, the results tend to be mixed at best. There are three areas of strength on this chart and they are identified by blue rising arrows and three declines are marked with red declining arrows. The main direction on the entire daily chart is a down, but the width of the channel is very wide.

This is an excellent article. I have précised it (below) to use as an aide memoir which I keep beside me when I trade. I have added colours to suit me. Today for example, the black crossed the pink as a trading signal but was within the two orange cloud lines, so I waited until the black and pink left the cloud for a good sell worth 30 pips. The market retraced and there was a very quick trading signal as black crossed pink BUT the orange cloud lines which had come together were just above the trade signal offering resistance which had to be breached. I waited for the candles and pink/black to cross them both for a nice long worth 48 pips. I suggest that the précis below is printed and read in conjunction with live charts.
This is a winning system and it works well in conjunction with the DMI with ADX overlayed as well as an Aroon indicator. It is ideal for anyone who needs to see a reason to enter a trade.
Kijun (Trend Line) Pink
Kijun means trend in Japanese. Consequently, if the trend line is heading down, then this gives a selling signal and if the kijun line is advancing, then this suggests a buying signal.

Tenkan (Signal Line) Black
The Tenkan line is a signal line that works in conjunction with the trend line (kijun). A crossover above the trend line gives a buy signal and a cross over below the selling line provides a sell signal.

Chiku (Lagging Line) Blue
The Chiku line, or the lagging line, is very important for the entire Ichimoku outlook. The lagging line is simply the current close plotted 26 periods behind.
If both the Chiku line and the market are in an uptrend, then this is a buy signal, and vice versa.

Senkou Spans A (Red) and B (Orange)(Cloud)
The two Senkou, or leading lines, create a Cloud-like formation, Kumo in Japanese, and this is an area of support or resistance. The market must break above the Cloud to give a buy signal or below the Cloud to give a sell signal. The Senkou lines are used in a similar manner as the standard support and resistance levels.